SeaWorld Lease Gives Taxpayers a Stake in Shamu’s Success

A long-term deal between SeaWorld and the city of San Diego gives taxpayers a stake in the company’s success.

SeaWorld has been a fixture in San Diego for 50 years but the marine park doesn’t own the land it sits on. The company rents its Mission Bay Park property from the city.

The company’s 50-year lease with San Diego is structured so that the city gets more cash the more SeaWorld’s business booms, an arrangement that means taxpayers could take a direct hit if state lawmakers approve a bill that could have dire consequences for SeaWorld’s bottom line.

SeaWorld rents 190 acres from the city, which includes about 172 acres of land and roughly 18 acres of water, and has rights to that property until at least 2048.

Last year, SeaWorld paid the city nearly $14 million in rent.

In 2012, the company paid about $12.7 million, which made up about 46 percent of total rent revenue the city collected from its Mission Bay leases in 2012.

Both figures exceeded the minimum required rent payment outlined in the lease at the time.

Monthly rent checks aren’t all SeaWorld forks over to the city.

Most renters don’t pay property taxes but SeaWorld’s lease with the city requires it. In fact, it paid about $5.2 million in property taxes this fiscal year, making it the 10th largest property taxpayer in San Diego.

A past agreement with the city also required SeaWorld to set aside more than $10 million over five years for traffic upgrades near the park, including widening projects for SeaWorld Drive and the West Mission Bay Drive Bridge. That temporary mandate ended in 2007.

But the largest annual payment comes in the form of annual rent charges, so I set out to answer some key questions about the lease.

How are rent payments determined?

For example, the company pays the city 3.25 percent of its gross revenues from general admissions, 10 percent of parking lot fees and 6 percent of alcohol sales.

That means the city gets more money out of the SeaWorld lease when the park’s business is thriving.

The formula has led to year-over-year gains in lease payments in recent years – rising from about $11 million in fiscal year 2011 to about $14 million in 2013 – but the amounts have varied in the last decade.

Even if SeaWorld’s revenues drop significantly, the company must pay the city a minimum rent of $10.4 million.

How often is the lease updated? Can the city renegotiate if SeaWorld’s profits skyrocket or fall?

The SeaWorld lease allows for negotiation every 10 years.

A 1998 lease amendment laid out how this works. Beginning in 2004, both SeaWorld and the city got the ability to confer over revenue percentages every 10 years, provided at least five years remained on the lease. The city’s real estate assets department is tasked with leading the charge on the city side, though officials have hired a handful of consultants to help out over the years.

But talks need to begin at least 18 months before the Jan. 1 “adjustment date,” as it’s referred to in lease documents.

SeaWorld and the city can go to mediation if they can’t reach an agreement 15 months in advance, which is what happened in 2004, when SeaWorld argued the city sought too much of its revenues.

Whatever adjustments they agree on, increases to the city’s cut of SeaWorld admission charges can’t exceed 4 percent or increase more than 1 percent during one negotiation period.

Why did the city structure its lease this way?

A resort and hospitality guru who helped negotiate substantive changes to the lease about a decade ago says the answer is simple: Tying lease payments to SeaWorld revenues ensures San Diegans benefit when visitors pack Shamu Stadium or buy more T-shirts.

Maurice Robinson, a Manhattan Beach-based consultant who represented the city in 2004 SeaWorld lease talks, said he relied on dozens of comparable revenue percentages included in leases with other parks and resorts to push for the rates currently in the city’s SeaWorld lease. Many of the city’s leases with Mission Bay hotels are based on similar percentage-of-revenue formulas.

But there’s one portion of SeaWorld’s lease that differs from many others. Theme parks tend to get the largest chunk of their revenue from ticket sales, and Robinson said other such leases he tracked down relied on an overall percentage of revenue – between 3.6 percent and 8.4 percent – rather than the categories laid out in the SeaWorld lease.

San Diego takes a 1.5 percent to 50 percent cut of nearly 20 different SeaWorld revenue streams – and 3.25 percent from park admissions – but it’s not clear what overall percentage of revenue the city takes in today. SeaWorld doesn’t provide revenue information for specific parks.

As of 2002 – before the most significant recent overhaul of the lease – SeaWorld lease payments amounted to about 3.9 percent of its San Diego park’s total revenue.

Robinson argues the city’s piecemeal approach to revenues, plus a slight uptick in the city’s cut of ticket sales since the early 2000s, have likely translated into better returns for the city.

“From both sides’ standpoint, it doesn’t make sense to apply one overall average rental percentage to services that have such a different profit profile,” he said.

When was the SeaWorld lease last updated – and how?

SeaWorld agreed to some minor tweaks to its lease with the city, effective this January.

Almost two years ago, SeaWorld agreed to give the city a cut of two new revenue streams. Each month, the city now gets 50 percent of the money SeaWorld makes from wireless equipment installed or operated at the park and a 30 percent cut of commissions it makes from distributed antenna systems, which serve areas flooded with lots of smartphone users.

SeaWorld’s minimum rent also increased from about $9.6 million to $10.4 million.

What else does the lease require SeaWorld to do for San Diego?

Here are a few interesting examples.

• SeaWorld must provide an educational program “which shall be suitable for and available for all elementary school children with supervision to be provided by the schools.”

As part of this clause, SeaWorld is required to submit annual audits to the city that lay out the number of students who participated, per-student charges and income SeaWorld received from the programming.

The latest audit the company submitted to the city shows more than 87,000 students and adult chaperones participated in SeaWorld programming in 2013. It reported charging $6 per participant.

The company reported that about 4.6 million visitors came to SeaWorld San Diego in both 2012 and 2013.

Interested in learning more about San Diego’s lease with SeaWorld? You can check out many of the city’s lease documents with the company here.

Correction: An earlier version of this post mischaracterized SeaWorld’s spending on educational programs. The company charges $6 per student for field trips, and the participation numbers the park reports to the city include both students and adult chaperones.

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I've been watching the Blackfish bill with interest. Sea World certainly called in a heavy hitter to lobby on their behalf. This plus their social media campaign shows they are taking this proposal and criticism seriously.

I sent a note to the Assemblyman regarding the economic arguments that are clearly being set up. In addition to associating him with the animal rights "radicals" they will claim it is a job killer bill that will hurt the local economy, put people out of work, harm the city's budget etc. The UT is discussing this in a big and no doubt coordinated way along with the Chamber, Mayor etc.

One idea for local policy discussion and exploration: If in fact the city has weighted the lease payment revenues for public land in Mission Bay to make them heavily reliant on Sea World's success, that is worth knowing. Sort of an "all your eggs in one basket" situation that doesn't make sense for any Business model.

Remember when Gov. Brown did away with redevelopment? That went away unexpectedly and left major programs such as affordable housing in the lurch. In a similar way, is anyone asking: What programs would take the hit if Sea World had a bad year?

The city coffers could suffer from Sea World leaving and/or having a setback due to any other reason, aside from the legislation. Given that possibility, you would think it's important to have a contingency plan in place to replace those revenues.

Others are raising similar questions here: Has anyone discussed this with the city's budget gurus, Real Estate Assets, Park and Recreation and other departments? How sustainable is this budgetary reliance on Sea World?

How much is the land worth if it were sold? How much revenue would the City bring in from taxes if the area was developed. This is important information and it seems like a lot of money, but we need to balance this against whether the City is getting a good deal here. If the City could make more money by selling the land and paying off debt or investing it then the City and taxpayers are subsidizing SeaWorld. I also wonder how this compares to the per square foot rate charged by the Port to SeaPort village or other Port tenants.

I'll add that Mission Bay Park, including the land leased by Sea World, is dedicated parkland. It cannot be used for anything other than park purposes, including sale for any kind of commercial development, without a 2/3 vote of the citizens of San Diego. I doubt they'd go for that.

This land and water was deeded to the City of San Diego by the State Harbor Commission in the early 1900s for use and benefit of the public, for recreation, marina, and the like. SeaWorld is REALLY stretching this, since it's a private, for-profit enterprise and access to the waterfront is limited to paying customers. But don't think the land/water could be developed for purely commercial and/or housing use.

@Martha Sullivan I have to chime in here Martha because I think it is important we have a full discussion about the future moving forward. If you look at the history of US theme parks over the past 5 decades there really is a noticeable trend. To drive attendance, because it allows for "tent pole" marketing campaigns, themepark operators have increasingly invested several tens (if not hundreds) of millions of dollars in a single "E-ticket" attraction on a semi-regular cycle. So over the past decade Disneyland Resort has successfully driving attendance with Carsland, Tower of Terror and Star Tours II. Relatively lackluster launches involved Little Mermaid DCA ride, Finding Nemo Subs, Midway Mania, and Pirates redo. We could compile a similar list for Universal both in Florida and Universal City.

The common denominator is height and speed. It is just nearly impossible to interest the public in an E-ticket ride that does not have these elements. I challenge you if you are calling for SW to adapt to point to one. Indeed, a real long term problem for SeaWorld, even operating as it is, is that they have not been investing in e-ticket rides. Manta was "oK" but not really able to drive attendance to any great degree and only received "so so" reviews.

Thus the rub. Would the San Diego public tolerate a coaster/animal park akin to Busch Gardens in Tampa or Williamsburg? In the past the answer has been decidedly NO. I frequently hear criticisms from many about the visual impact of Journey to Atlantis. So if people want a vibrant (and revenue producing Seaworld without orcas that is probably the main (only?) course available.

Now some do not really want SeaWorld to succeed in any form. I guess they are willing/have ideas on how to replace the 10-15 million generated from the lease. But if you LIKE the city services you get from that lease money it is probably necessary to either embrace a coaster park or accept status quo operations (or think of a mega hotel capable of generating similar revenues) as it is impossible to point to a theme park generating 4.4 million visitors operated in any other fashion.

As Lisa H reported early in this series: Disney's 2 parks in
Anaheim and Universal Studios' in Hollywood each draw more visitors than
any of SeaWorld's parks, and they are not dependent nor predicated on
performing captive wild species. Where's the evidence for the
conclusion that ending orca performances at SeaWorld will have "dire
consequences" for its revenue?

Successful businesses adapt to
changing markets, or they fail. The City of San Diego should be
concerned that SeaWorld's stubborn refusal to recognize the growing
understanding throughout the world that the captivity of highly
intelligent, socially sophisticated marine animals in wholly unnatural
conditions will lead to a decline in visitors.

The
UK is captive dolphin and whale free, the last dolphinarium in the UK
was Windsor Safari Park, which stopped its exploit of the animals in
1993. Seaworld was one of the park's key attractions and the dolphins,
sea lions and killer whales would perform shows several times a day. It is now Legoland Windsor.

Killer
whales had been on show in the UK since the late 1960s. However, the
British people decided against the use of whales and dolphins in
captivity due to campaigns set out by Greenpeace. Once upon a time,
visitors were desperate to see the dolphins and whales held in captivity
in the UK (such as, Flamingo Land, Dudley Zoo and Windsor Safari Park)
but the British people stopped attending after the campaigns.

Peoples
lack of interest, as well as the change in law and the cost of keeping
the animals led to Windsor Safari Park selling its dolphins and its
lone killer whales and closing its dolphinarium.

However, the law
within the UK is only in regard to the size of the tanks and exhibition
pools! So in fact there is no specific law in keeping cetaceans in
captivity within the UK, it was simply down to the cost of upsizing the
tank. But, there are still strict laws against orca capture and
cetacean export so it does seem that it would be difficult for a marine
park to be set up over here. http://thisisplanetocean.blogspot.com/2013/05/the-laws-relating-cetacean-captivity-in.html#!

Captive dolphin shows are also now banned in India. The country says that
dolphins should be treated as "non-human persons" and not be forced to
perform for the amusement of humans. There are no facilities in India
that currently showcase dolphins for entertainment.

According to
alrasub.com, the Ministry of Environment and Forests in India has banned
"any person/persons, organizations, government agencies, private or
public enterprises that involves import [or] capture of cetacean species
to establish for commercial entertainment, private or public exhibition
and interaction purposes whatsoever."

India is now the fourth
country to ban dolphin shows. Costa Rica, Hungary and Chile all ban the
use of dolphins for public entertainment. The UK and Brazil have also
offered legislation to ban cetacean (whale and dolphin) performing
shows. NOTE: Orcas ARE dolphins, not whales.

@Martha Sullivan" Peoples lack of interest, as well as the change in law and the cost of keeping the animals led to Windsor Safari Park selling its dolphins and its lone killer whales and closing its dolphinarium." To whom were the animals sold? Was it to be turned into food? Was it to be released back into the wild, where they probably couldn't survive?

Which creatures at Sea World do you propose to eliminate? After all, all living creatures have feelings. Where do we bring injured wild dolphins and sea lions to be nursed back to health, and then released?

The only positive suggestion I seem to see, is turning the venue into a Legoland with kiddie rides. We already have one of those not far away.

Have you given any thought to all the sentient creatures dwelling at the San Diego Zoo? Surely the Pandas would be happier back in China. Think of the misery of the gorillas and chimps!

After you turn SeaWorld into Kiddie Waterland, we could call the Zoo Kiddie Safari. That will show the Brits and Indians we're as humane as they are!

Grammie, there are proposals by marine mammal scientists to release marine animals in a planned and guided way, where possible. Where not, sea pens would be created to provide a much more naturalistic habitat for these captive wild species to live out the rest of their lives with care, human interaction as they initiate and NO performing nor captive breeding. Assy. Richard Bloom's recently-announced bill is based on this scientific work.

Thanks for all the important details to this situation. Your title, however, is inaccurate and seems to take sides in the controversy. The City of San Diego is tied to Sea World's success, not Shamu's. You're implying that Sea World could not be successful without Orca shows and I think the company could be smart enough to figure a way to pivot on this issue.

Lisa, you yourself reported early in this series that Disney's 2 parks in Anaheim and Universal Studios' in Hollywood each draw more visitors than any of SeaWorld's parks, and they are not dependent nor predicated on performing captive wild species. Where's the evidence for the conclusion that ending orca performances at SeaWorld will have "dire consequences" for its revenue?

Successful businesses adapt to changing markets, or they fail. The City of San Diego should be concerned that SeaWorld's stubborn refusal to recognize the growing understanding throughout the world that the captivity of highly intelligent, socially sophisticated marine animals in wholly unnatural conditions will lead to a decline in visitors.

Captive dolphin shows are now banned in India. The country says that dolphins should be treated as "non-human persons" and not be forced to perform for the amusement of humans. There are no facilities in India that currently showcase dolphins for entertainment.

According to alrasub.com, the Ministry of Environment and Forests in India has banned "any person/persons, organizations, government agencies, private or public enterprises that involves import [or] capture of cetacean species to establish for commercial entertainment, private or public exhibition and interaction purposes whatsoever."

India is now the fourth country to ban dolphin shows. Costa Rica, Hungary and Chile all ban the use of dolphins for public entertainment. The UK and Brazil have also offered legislation to ban cetacean (whale and dolphin) performing shows. NOTE: Orcas ARE dolphins, not whales.

The UK is captive dolphin and whale free, the last dolphinarium in the UK was Windsor Safari Park, which stopped it's exploit of the animals in 1993. Seaworld was one of the parks key attractions and the dolphins, sea lions and killer whales would perform shows several times a day.

Killer whales had been on show in the UK since the late 1960s. However, the British people decided against the use of whales and dolphins in captivity due to campaigns set out by Greenpeace. Once upon a time, visitors were desperate to see the dolphins and whales held in captivity in the UK (such as, Flamingo Land, Dudley Zoo and Windsor Safari Park) but the British people stopped attending after the campaigns.

Peoples lack of interest, as well as the change in law and the cost of keeping the animals led to Windsor Safari Park selling its dolphins and its lone killer whales and closing its dolphinarium.

However, the law within the UK is only in regard to the size of the tanks and exhibition pools! So in fact there is no specific law in keeping cetaceans in captivity within the UK, it was simply down to the cost of upsizing the tank. But, there are still strict laws against orca capture and cetacean export so it does seem that it would be difficult for a marine park to be set up over here, on the other hand it would not be impossible as we have shown it is possible to manipulate the system and mislead the public.

The German division of Touristik Union International
(TUI), one of the world's largest tour operating companies, has
announced that it will no longer offer trips to dolphin and orca shows
-- a move lauded as a major win for cetaceans, and a significant blow
for the industry profiting from their captivity.

@Jim JonesVirgin's "Richard Branson is an icon in leadership to nearly 4
million subscribers on LinkedIn and almost as many on Twitter. What he
says is heard, and his views often set policies worldwide. As a leader
and a conversationalist, he receives hundreds, if not thousands Tweets a
day pleading with him to sever ties with SeaWorld.

"Mere hours after I sent this tweet to Richard Branson, he dropped the
hammer on Virgin companies doing business with “any organization that
don’t pledge to never again take cetaceans from sea”. He
also posted an announcement of an outline of a six-month “Engagement
process on captive Cetaceans” plan that will determine which commercial
partners he continues to do business with.

"The link in my tweet was an expose highlighting the use of Kshamenk as a sperm bank
to the SeaWorld Orca breeding program, and the suggestion that recently
captive Russian Orca would certainly be of interest to SeaWorld to
address their genetic diversity issue. The post also highlights
SeaWorld’s continuing attempt along with the GA Aquarium to import 18
Beluga whales that were wild captured in the Sea of Okhotsk. All of
these are points that the Engagement Process will consider." http://seaworldpledge.org/blog/orlando-we-have-lift-off/

What I am saying AGAIN is that successful businesses adapt to change in their market or they fail. There is now a successful Legoland where the Safariland was; it doesn't matter to the economy what the name is, just whether it contributes to the economy.

Remember Flipper? SeaWorld was profitable before it began capturing wild Orcas and making them perform for the tourists. I'm sure it would remain profitable if the shows featured Dolphins and Sea Lions if the Killer Whales were no longer available. Losing them would not put Sea World out of business.

Sea World may have opened in 1964 without an Orca show but definitely had at least one Orca by December, 1971. This is based on home movies my father took when my parents visited me at that time. I didn't move to SD until late 1970 but it's my impression that the Orca show was there in April, 1969, when I visited friends here and they took me to Sea World.

Our understanding of marine mammals as sentient beings has grown dramatically in part due to the efforts of SeaWorld. It's now time for the park to acknowledge that confining these animals in captivity, separating them from family units and ultimately driving them to psychosis isn't, well, particularly human.

Anyone who's been to SeaWorld San Diego recently has probably noticed that the park has evolved into more of Six Flags/Disney-type experience. It's more about the rides, the merchandise and the fun-to-do kid-stuff than it is about serious, oceanographic research....and that's fine.

SeaWorld knows that the day is coming that it's days of imprisoning orcas are numbered. It has wisely shifted its focus. It would be miles ahead of an assured public-relations trainwreck to release these animals back to their native seas knowing it had done the right and moral thing.